Tuesday, December 16, 2014, 2:46 PM

N.C. Court of Appeals: Limitations Period Does Not Apply to Local Government Enforcement of Subdivision Performance Bonds

A post-Great Recession treat, the North Carolina Court of Appeals affirmed today a ruling that the Town of Black Mountain is entitled to enforce subdivision performance bonds originally in the name of Buncombe County, after the Town annexed the land to which the performance bonds applied.

Facts

From March 2005 through February 2007, defendant sureties entered into four subdivision performance bonds related to the development of two residential subdivisions that were, at the time, located within the County's subdivision jurisdiction. County approval of the two projects was conditioned on the developers obtaining those performance bonds, which named the County (and not the Town) as obligee.

At various points between May 2005 and February 2007, the property related to the bonds was annexed into the Town.

The developers eventually folded.

In 2012, the Town contacted the defendant sureties and asked if they would "consent to an assignment of the bonds to the Town". Defendant sureties refused consent.

Later in 2012, the County assigned, and the Town accepted assignment of, the bonds despite defendant sureties' lack of consent. The Town then submitted notice of its claims to defendant sureties, and defendant sureties refused payment on the subdivision performance bonds.

Trial Court

The Town and the County brought a breach of contract suit together "because they anticipated that defendants would challenge standing if either party sued separately". As a result, according to the Court, their claims were "pled in the alternative".

The trial court entered summary judgment in favor of the Town and the County, and the defendant sureties appealed.

The Court held as follows: (1) the annexation of land "that is the subject of a private contract between the county and a private citizen" does not "nullif[y] the contract", and the Court refuses defendant sureties' efforts to read Stillings v. City of Woinston-Salem, 311 N.C. 689 (1984) to that degree; (2) the bonds, themselves, do not at all indicate that assignment from the County to the Town was impermissible or without legal effect; (3) the three-year statute of limitations at NCGS 1-52 does not apply to subdivision performance bonds entered into pursuant to NCGS 153A-331, because that is a governmental activity and so the Town is protected under the doctrine of nullum tempus occurrit regi, relying on Rowan County Bd. of Educ. v. U.S. Gypsum Co., 87 N.C. App. 106 (1987) and Rowan County Bd. of Educ. v. U.S. Gypsum Co., 332 N.C. 1 (1992).

The defendant sureties are not entitled to a "windfall", the Court opines, a result which any other analysis would create. The Town will get its funds to complete the subdivision improvements initally promised to the County.

We take special note of the statute of limitations portion of the ruling, which could open the door in North Carolina to a number of suits on unclaimed performance bonds entered into before the real estate development climate turned "south" in 2009. Time is not, as the Court sees it, of the essence to the local government in enforcing certain of these obligations.

"But we can still enforce the performance bonds to get that traffic light we were promised, right?"

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

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